Last week I wrote about the bulk of the changes coming to the Servicing Rule. This week I will give an overview of some of the changes to the Servicing Rule's Loss Mitigation provisions (section 1024.41 of Regulation X) that will become effective on October 19, 2017. Again, the CFPB spent almost 200 pages describing these changes so this will just be an overview. In a later article, I will discuss the Servicing Rule's changes to Regulations X and Z that will become effective April 19, 2018.
A couple of revisions are made to the Official Interpretations of § 1026.41(b)(1) that clarify how a servicer is to handle loss mitigation applications. First, a new comment is added clarifying that a servicer may stop collecting documents and information pertaining to a particular loss mitigation option after receiving information confirming that the borrower is ineligible for that option. A servicer must exercise reasonable diligence in obtaining documents and information required to complete a loss mitigation application. Due to the fact that servicers were collecting large amounts of irrelevant and unnecessary information from the borrower, it was determined that a complete application is an application for which a servicer has received all the information the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower. The new comment makes it clear that: (i) a servicer may stop collecting documents and information for a particular loss mitigation option upon receiving information confirming that the borrower is ineligible for that option; (ii) the servicer must continue to seek documents and information that pertain to all other available options; and (iii) a servicer may not stop collecting documents for a particular loss mitigation option solely because the borrower stated preference for a different option but may stop collecting documents and information for any loss mitigation option based on the borrower's stated preference in conjunction with other information.
By adding a new comment to the Official Interpretations of § 1024.41(b)(2)(i), the rule clarifies the timelines for when a servicer must review and acknowledge a borrower's loss mitigation application when no foreclosure sale has been scheduled as of the date the loss mitigation application is received. If a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, the servicer must promptly review the application to determine if it is complete and, within five business days, notify the borrower in writing that the application was received, state whether it is complete or incomplete, and if the application is incomplete, state the additional documents and information needed to complete the application. The regulation was silent on how to handle the loss mitigation application if no foreclosure sale was scheduled. The new comment provides that if no foreclosure sale is scheduled when the servicer receives a loss mitigation application, the servicer must treat the application as having been received 45 days or more before any foreclosure sale.
A few revisions to the Official Interpretations of § 1024.41(b)(2)(ii) clarify the requirement that a servicer include on the loss mitigation application acknowledgment notice a reasonable date by which the borrower should submit additional documents and information necessary to make the loan application complete. Under the rule, generally, a servicer complies with this requirement by including a date that is 30 days or more after the date the servicer provides the written notice. Despite the 30-day standard, the reasonable date must be no later than the earliest of the following four milestone dates, even if that date is less than 30 days from the time the creditor sent the notice: (i) the date any document or information submitted by a borrower will be considered stale or invalid under any applicable loss mitigation option; (ii) the 120th day of the borrower's delinquency; (iii) 90 days before a foreclosure sale; and (iv) 38 days before a foreclosure sale.
It also must never be less than seven days from the date the servicer provides the written notice. The CFPB believes that this increased specificity will allow borrowers sufficient time to obtain and submit application materials while reducing lengthy timelines for returning documents, which can lead to borrower disengagement, increased delinquency, or a diminished likelihood that the borrower will obtain a loss mitigation option.
There are changes to how a servicer must handle incomplete applications as well. A servicer will now be able to offer borrowers short-term repayment plans based on an incomplete application. Currently, a servicer may offer a short-term forbearance program but the regulation did not specifically address short-term repayment plans. Promptly after offering the program or plan, unless the borrower has rejected the offer, the servicer must provide a written notice to the consumer. The notice must state:
- The specific payment terms and duration of the program or plan;
- That the servicer offered the program or plan based on an evaluation of an incomplete application;
- That other loss mitigation options may be available; and
- That the borrower has the option to submit a complete loss mitigation application to receive an evaluation for all loss mitigation options available to the borrower regardless of whether the borrower accepts the offered program or plan.
A servicer must continue to exercise reasonable diligence when a servicer offers a borrower a short-term payment forbearance program or a short-term repayment plan based on an evaluation of an incomplete loss mitigation application. From the time the servicer offers a short-term repayment or forbearance plan until the consumer accepts the offer, the servicer must continue to exercise reasonable diligence in completing the application. Once the consumer is performing under a short-term repayment or forbearance plan, the servicer may cease its efforts to complete the application. But if the borrower defaults on the short-term plan, the servicer must immediately resume its reasonable diligence in obtaining the information or documents to complete the application. Additionally, a servicer is prohibited from making the first notice or filing required for any foreclosure process, or moving for foreclosure judgment or order of sale or conducting a foreclosure sale, if a borrower is performing pursuant to the terms of a payment forbearance program or repayment plan. Finally, a servicer may offer a short-term payment forbearance program in conjunction with a short-term repayment program.
The 120-day prohibition on foreclosure filing is being modified slightly. Currently, the regulation prohibits a servicer from making the first notice or filing required to begin the foreclosure process unless:
- The borrower is more than 120 days delinquent;
- The foreclosure is based on the borrower's violation of a due-on-sale clause; or
- The servicer is joining the foreclosure action of a subordinate lienholder.
Nothing in the regulation permitted a servicer to join the foreclosure action of a senior lienholder. This left subordinate lienholders in an awkward situation when the borrower is current, or at least not 120 days delinquent, on the subordinate lien but delinquent on the senior lien. The senior lienholder could begin the foreclosure process but the junior lienholder could not join the action. The rule will now permit such junior lienholders to join the foreclosure action of a senior lienholder.
The prohibition on foreclosure sales when a borrower has submitted a complete loss mitigation application is being clarified. The commentary is revised to make it clear that a servicer is not relieved of its responsibilities just because the foreclosure counsel's, or anyone else's, action or inaction caused the violation to occur.
Finally, the rule adds protections for the consumer when the servicing is transferred while a loss mitigation application is pending. Essentially, if you are a transferee servicer, you must comply with all of the same requirements. A consumer is entitled to all of the same rights and protections as they were before the transfer.
As I mentioned last week, there are a lot of changes so do not wait until the last minute to get started on implementation. That said, most of the changes are technical in nature and nothing drastic is changing so it should not be overwhelming. And, as always, we are always here to help with the process.